Transportation: Paying for the Railroads

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Transportation: Paying for the Railroads

Internal Improvements. One of the oldest political arguments in the United States was over the government’s role in fostering commerce and building internal improvements in the West. As the territory called the West grew by leaps and bounds in the first half of the nineteenth century, the argument had enormous political and economic consequences. Henry Clay’s American System represented one vision of cooperation between government legislation and privately owned capital in developing the West. Other politicians, notably those allied with Thomas Jefferson and Andrew Jackson, opposed any role for the federal government in promoting economic development. Some states, well aware of the political stalemate in Washington, threw the power of local governments into promoting growth. New York, for example, financed the building of the Erie Canal in the early 1820s without federal assistance. The canal was a stupendous success—by the early 1850s, the volume of Western commerce on the canal was twenty times what it had been in the mid 1830s—and areas of upstate New York and the Midwest were quickly transformed into regions that exported grain. More significant, the canal demonstrated the profit to be made when farmers and merchants could transport grains and other goods from the West to larger markets in the East, or even across the Atlantic. The price of moving goods over long distances dropped 95 percent between 1815 and 1860.

Railroad Boom in the Midwest. Canals were extremely expensive to dig and maintain. Railroads, on the other hand, were cheaper to build and moved goods at dizzying speeds. The first American railroads began service in the 1830s, but they did not constitute a true railroad system. Railroads still lacked links to one another; most simply connected one water route (rivers, lakes, and canals) to another. After 1840 railroads began to overtake canals and all other modes of transport in connecting the Northeast with the West. After the Mexican War an unprecedented burst of railroad construction revolutionized transportation. During the decade of the 1850s, builders in Illinois laid more than two thousand six hundred miles of track, those in Ohio more than two thousand three hundred, and in Wisconsin nearly nine hundred. Construction in the South was much slower. Mississippi, for example, laid just 800 miles of track during the decade.

Aid for Railroad Builders. The largest problem facing the railroads was how to finance the furious growth, especially of the longer lines linking the Midwest with the East. The answer, of course, was public aid. Of all the lines linking the two regions, only the prosperous New York Central required no government assistance. The others became mixed enterprises, receiving up to half their capital from state and local governments and raising the rest with bonds sold to individual investors. Federal aid, as with canals and turnpikes, was usually bogged down in Congress. This public assistance took various forms, including loans, government-bond purchases, tax exemptions, and even outright public ownership of rail lines.

Windfall for the Illinois Central. The federal government officially entered the railroad business in 1850, when a bill passed both houses of Congress granting federal land to the states to build a railroad connecting the Gulf of Mexico to Lake Michigan. The big winner in the deal was the Illinois Central Railroad, which received a staggering grant of 2.6 million acres of free land. The railroad was free to mortgage this land or, better yet, sell it to farmers. In effect, Congress gave the Illinois Central the entire $23.4 million it needed to construct the railroad. Other states and their railroad promoters quickly demanded the same arrangement, and by 1860 Congress granted more than 30 million acres for railroad construction to eleven different states. During the construction of the transcontinental railroad lines after the Civil War the government was even more generous, offering companies free land and easy credit.

“Northernizing” the Midwest. The linking of East and West using government land and funds had enormous economic and political significance. As a result of federal grants to railroad companies, sparsely settled regions in Indiana, Illinois, and Wisconsin became prosperous farming centers connected to the world market. Farmers in the West, whose numbers swelled in the years before the Civil War, shared in the railroad promoters’ prosperity. Finally, as the Mississippi River ceased to be a lifeline for farmers in Illinois, Indiana, and even Ohio (replaced, of course, by East-West railroads) citizens could afford to be hostile to slavery and its expansion. Cultural and economic ties made the region we now call the Midwest far more Northern than Southern.